TAX NEWS NO: 2012/6

 November 01, 2012



Restriction on the deduction of the financial expenses from taxable income will be effective as of 1 January 2013


Law No. 6322 which makes amendments to various tax laws was promulgated in the Official Gazette dated 15 June 2012.

As per the Article 37 of the above mentioned Law and the Article 11 (i) of the Corporate Income Tax Law, In cases where the external borrowings of a company exceeds its equity, up to 10 % of the interest, commission, delay charge, dividend, foreign exchange losses and the similar types of expenses incurred on the exceeding portion (i.e. except for the expenses that were included in the cost of ongoing investments) shall not be deducted from the corporate income tax base provided that the Council of Ministers takes a resolution in this regard. On the other hand credit institutions, financial institutions, financial leasing, factoring and financing companies shall not be subject to this regulation.

This new regulation which aims at encouraging the enterprises to use their own resources rather than external borrowings in order to fulfill their financing needs, will be effective as of 1 January 2013. However, in order to apply this regulation, it is required that Council of Ministers determines the portion of the financing expenses related to the borrowings, that will not be deductible from the tax base. The rate to be determined by the Council of Ministers shall not exceed 10 %.

In order to give an example to the applicability of the mentioned regulation; it is assumed that an entity with an equity of 100.000 TL borrows an external loan amounting to 150.000 TL and incurs financial expenses at an amount of 21.000 TL in connection with the concerning loan. In such a case, the financing expense related to the portion which exceeds the equity (50.000 TL) will be equal to 7.000 TL (21.000 x 50.000/150.000 = 7000). 10 % of this financing expense (it is assumed that the Council of Minister has determined the ratio as 10%) which is 700 TL will be considered as non-deductible expense. 

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Deloitte Turkey

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